The rise and fall of the company behind ‘Reader Rabbit’ and all your favorite educational games

Inside the collapse of a once-robust industry, and the ‘Shark Tank’ star who abetted the process.

Each May, as the elementary school year was winding down, our teachers would send us home with a new educational CD-ROM — hoping, I assume, that it would keep our young brains from rotting away during the lazy summer months. As a result, I spent many a 100-degree Texas day indoors, glued to our family’s outdated computer monitor. One year, I helped Reader Rabbit salvage the town play after it was sabotaged by an angry chipmunk; another, I joined the Cluefinders to traverse the Numerian jungle and defeat a mysterious winged monster known as “Mathra.” I bought new costumes by solving addition problems, unlocked ancient gates by pairing synonymous words, even hitched a ride with a flock of birds after brushing up on U.S. geography.

Little did I know, the real drama was happening off-screen. Both Reader Rabbit and Cluefinders were the work of The Learning Company (TLC), a dominant player in the realm of educational software during its peak in the late 1980s and ’90s. At a certain point, TLC owned pretty much every computer game that mattered to millennials: The Logical Journey of the Zoombinis, Where in the World Is Carmen Sandiego?, even Oregon Trail. But by 2000, the company was in financial shambles — and, in what was labeled one of the worst business deals of all time, almost took a Fortune 500 company down with it.

“It’s a fascinating story,” said Warren Buckleitner, editor of Children's Technology Review. “It attracted pioneers both in the business sense and the education sense. A lot of educators could see quickly how powerful the medium was for giving kid instant feedback. That alone was like, ‘Oh my gosh, it’s like the Holy Grail of learning.’”

Perhaps appropriately, then, it all started with an ex-nun.

“The programs I designed were done to lead kids towards the answer, rather than punish them for not getting it the first time round.”— Leslie Grimm, The Learning Company co-founder

For six years, Ann McCormick was a sister of St. Joseph of the Peace in Washington state. But it wasn’t until she left the convent and moved to East Buffalo, New York, to teach fifth grade that she had the first inklings of her true calling.

At P.S. 74, she was shocked to find that, even at 13 years old, a handful of her students could hardly read a full sentence on their own. Determined to address these issues on a structural level, she returned to the west coast and received her doctorate in education at UC Berkeley. (She specialized in black dialect, writing a dissertation that is still being referenced by linguists today.)

Following a five-year stint developing teaching models for low-income schools, McCormick became interested in the nascent world of personal computing. In 1977, the Apple II hit shelves. In 1979, she won a grant — $1,000 and her very own Apple II — from the Apple Education Foundation, to create a program that would teach preschoolers directional concepts like “above and below” or “left and right.”

In 1981, she was awarded $130,000 by the National Science Foundation and National Institute of Education to develop programs in geometry and logic for second- and third-graders. When her original grant partner dropped out, McCormick recruited Teri Perl, an educational psychologist with a PhD in mathematics from Stanford, as the vice president and resident math whiz .

Of course, she also needed someone who understood computers — and Warren Robinett happened to be looking for a job. The 20-something computer engineer had recently quit Atari, where he’d designed and programmed the genre-defining video game Adventure. (Later, Robinett would become quietly famous for hiding his name within the game as a “fuck you” to his corporate bosses, who wouldn’t let programmers publicly claim authorship of their work. It became gaming’s first known “Easter egg” — and a key plot point in the 2018 Steven Spielberg movie adaptation of Ernest Cline’s book Ready Player One.)

McCormick, Perl, and Robinett set up shop in a one-room office in Portola Valley, California under the name Alternative Learning Technologies (ALT) — “a good grant-getting name,” as McCormick quipped. Robinett got to work on a new game that he intended as a sequel to the popular Adventure. “But in this follow-up game,” he explained, “I was going to have different objects you could plug together, kind of like you could plug together pieces in a Lego set, to build machines that you could use to defeat the monsters.”

It was based on the concept of logic gates — different types of electric circuits with two inputs and a single output — which computer engineers were taught in college hardware courses. Yet Rocky’s Boots, as the game came to be called, ended up as more of an instructional kit than an adventure due to time constraints during development. But it was effective. “Rocky’s Boots really put us on the map,” Perl said, recalling a trip to Bulgaria to speak about the program. Years later, McCormick said, MIT students would write to say, “I learned this in second grade, but my friends can't understand this. Can you send me Rocky’s Boots?”

Not far away, in Mountain View, Leslie Grimm was building her own suite of games. An elementary teacher’s aide (who also boasted a Stanford PhD in biology), Grimm had first-hand experience with some of the earliest educational software made by textbook companies. “It would ask the kids a math question, and if they got it wrong, the screen would fill with a big red X and there would be a loud raspberry sound,” she recalled with mild horror. So, she taught herself BASIC and made something better. “The programs I designed were done to lead kids towards the answer, rather than punish them for not getting it the first time round.”

Apple’s software division showed an interest in Grimm’s games, agreeing to publish them before abruptly closing up shop. (“They decided they weren’t in the software business, they were in computer business,” she explained.) So when the school secretary mentioned a new company up in Portola Valley that was working on educational software, Grimm decided to give McCormick a call. The pair clicked immediately. “I hung around and helped with the stuff that [Robinett] was working on,” Grimm recalled, “learned Assembly, helped on Rocky's Boots and Juggles’ Rainbow with no salary for a while.” An injection of $300,000 in venture capital came in late 1981, allowing McCormick to hire Grimm on full-time. Her games, plus Rocky’s Boots and a few others, comprised the first lineup of six products released by the business — now officially renamed “The Learning Company” — in 1982.

But Grimm’s greatest contribution was still to come. Inspired by the methods of a “particularly fine teacher” in a nearby school district who taught students with language disabilities, she created a dancing digital rabbit to guide children on their way to literacy. Reader Rabbit was born, published in 1984 as one of the very first character-based software programs. It spawned more than 30 spin-offs, which together sold at least 14 million copies.

Paired with Rocky’s Boots, TLC had both a critical darling and a popular franchise. “It's not on people’s wish list to get something that teaches their second grader logic gates,” explained McCormick. “It’s on their wish list that they learn to read. So Reader Rabbit was a much more popular product.”

To hear McCormick tell it, those first few years at TLC were a whirlwind. Her initial business partner, Barbara Jasinski, had been Steve Jobs’ girlfriend, meaning that the small software company shared a lawyer and PR firm with the personal computing powerhouse. McCormick and Jobs were often a package deal for shows or publications interested in interviewing them; she appeared on Donahue twice, met with government representatives around the world, and was featured in the likes of Fortune, Psychology Today, and BusinessWeek. “They were the pioneers,” Buckleitner said of TLC’s significance in the educational software sphere. “They were the very first.”

The young company was still on rocky financial ground, however. Although they made $1 million their first year, Grimm said one of the early CEOs, Jack Smyth, set their product prices prohibitively high. (Rocky’s Boots, she recalled, originally cost $75.) The board replaced him with Marcia Klein, who worked well with McCormick and helped redesign the packaging and reprice their games.

Then Klein, who was in her mid-30s, had a stroke. TLC’s board hired a temporary CEO, a man with experience in the medical equipment industry, and he promptly fired the entire development team. (None of my sources could recall his name.) The founders slowly dropped off throughout 1983 and ’84 — Robinett and Grimm left to pursue other projects, while Perl was fired. McCormick was the last to leave, pushed out in December 1985.

TLC wasn’t the only company with growing pains. Across the industry, early visionaries were being ousted in favor of career businesspeople. Jan Davidson, co-founder of educational software company Davidson & Associates — best known for combining aliens and addition in Math Blaster — stepped down as president because she believed the new owners were privileging profits over quality. Budgets shifted away from research and development — that is, building new games — and towards marketing.

TLC pursued this strategy under president and CEO Bill Dinsmore, who ran the company from 1985 to 1995. Sales went up, aided by the replacement of the floppy disc with the more technologically advanced CD-ROM in the late 1980s. In 1992, TLC went public.

Meanwhile, other companies were rapidly filling out the burgeoning industry. Some, like Brøderbund and the Minnesota Educational Computing Consortium (MECC), were the heavy hitters — the former responsible for the international capers of Carmen Sandiego and the mysterious island of Myst, the latter for the perennially popular, perennially frustrating Oregon Trail. “A few companies really were able to tap the market and became major players in terms of revenues,” Buckleitner said. “From there, the field just exploded.” He estimates somewhere between two and three hundred smaller companies and publishers sprang up to create products for the CD-ROM.

Business was booming — and all the while, an even more cutthroat model for success was looming on the horizon.

In the early 1980s, Kevin O’Leary — today one of the “sharks” of Shark Tank — founded SoftKey Software Products Inc. in his Toronto basement, intending to sell office productivity software. But by the ’90s, with his company floundering, O’Leary redirected his energy towards the flourishing educational software industry. Rather than investing heavily in research and development, however, his strategy involved buying up existing software companies and touting their already-popular games at big box stores like Best Buy and Costco. That, in turn, required a dramatic slash in prices. In his 2011 autobiography, O’Leary recalled a meeting with Walmart in which the buyer informed him that SoftKey’s average product price of $39.95 wouldn’t cut it, declaring “Here, y’all gonna sell your computer stuff for $19.99.”

Walmart and its ilk also privileged flashy packaging over content. “Software was moving from more specialized software stores where you have knowledgeable salespeople to big box stores where the only way stuff sells is if it stands out on the shelf,” explained Scot Osterweil, creative director of MIT’s Education Arcade and the creator of Zoombinis. Licensed cartoon characters, Osterweil said, became more important than engaging gameplay.

O’Leary’s SoftKey made a bid for The Learning Company in 1995, edging out a competing offer from Brøderbund, and ultimately acquired TLC for $650 million. Even then, SoftKey’s business model was cause for concern. A 1996 report from a forensic accounting firm — featuring a grab bag of red flags, including suspicious firing of auditors and overstated earnings — concerned TLC so much that the board insisted the purchase be made using cash, rather than stock. Although they were no longer employed, Grimm, Robinett, and Perl made millions from the sale. (McCormick, however, had already sold her shares.)

SoftKey renamed itself The Learning Company to take advantage of its strong reputation, continuing to gobble up industry powerhouses including MECC, in 1995, and Brøderbund, in 1998. All told, SoftKey bought more than 20 entities, becoming the world’s second largest consumer software company after Microsoft in the process. “O’Leary basically saw software companies as commodities,” said Buckleitner. “He was the soulless businessperson who just came in and bought a bunch of companies and scaled them back and laid off all the good people.” At its peak in 1998, O’Leary sold TLC to Mattel for an astounding $3.5 billion — 4.5 times The Learning Company’s annual revenue.

The deal was ill-advised from the start. Analysts warned Mattel’s CEO, Jill Barad, that TLC was a “house of cards.” The business was boosting its revenue by purchasing new companies, but the significant acquisition costs weren’t reflected in their top-line earnings. Plus, O’Leary’s refusal to invest in research and development was finally catching up to him — after years with no significant updates, old standbys were beginning to run thin. There were even allegations (never tested in court) that TLC was shipping out inventory to stores who had secretly agreed not to return unsold merchandise, boosting the appearance of sales. Yet Mattel, lured by the promise of a red-hot market and troubled by Barbie’s waning appeal, overlooked these warning signs.

“[TLC] killed the educational software industry. It killed it because there was so much product out there and all of the product was crap.”— Bernard Stolar, former Mattel president

Eighteen months later, Mattel — now bleeding a million dollars a day — sold TLC for $27 million. Barad was forced out. Analysts at the Observer and Bloomberg have described the sale as one of the worst business takeovers of all time; a 2008 case study characterized Mattel at that time as “a company which many considered lost.” Of course, the toymaker eventually found its footing. Educational computer games would not have the same luck.

“[TLC] killed the educational software industry,” Bernard Stolar, a leader in the world of video games who was brought in by Mattel to try and save TLC, told Canada’s National Observer in 2016. “It killed it because there was so much product out there and all of the product was crap.”

For his part, Buckleitner thinks this is too neat of an explanation. The final years of the 20th century had introduced another creeping challenge — the internet, which appeared in 1994. With educational games now freely available online, why spend $20 on a CD-ROM? “When the internet came it kind of poisoned the well,” he said. “All of a sudden the CD-ROM, this reliable vehicle for buying and selling content, was fractured. Now you could do downloads or streaming or flash, and everything kind of fell apart.”

The Learning Company became a business version of hot potato, its intellectual property tossed from one company to another. Games continued to be produced throughout the early 2000s, including the Cluefinders series I loved as a kid. Osterweil, who was working on a sequel to Zoombinis when Mattel purchased TLC, saw his project stalled, but ultimately completed. But the air was slowly leaking out of the industry. In 2000, sales of educational software for home computers reached $498 million; by 2004, those sales had plummeted to $152 million.

In 2005, The New York Times made it official. “Once a Booming Market, Educational Software for the PC Takes a Nose Dive,” read the headline.

According to Osterwiel, the industry never fully recovered. The problems that plagued it during its previous downswing persist today, albeit with more advanced technology. Apps are the new medium for educational games — but they sell for $1 apiece, an amount that would have been “the price of postage” to mail a game on CD-ROM, Buckleitner noted wryly. Quality research and development is practically impossible with that sort of profit margin.

These days, TLC products are mostly relegated to nostalgia-laced BuzzFeed lists. But, decades later, their brands are still strong. Oregon Trail was re-released on Facebook as a tourism board publicity stunt, while Carmen Sandiego is getting the Netflix treatment in 2019 with both an animated show and a live-action movie starring Gina Rodriguez. There’s an entire YouTube ecosystem of ’90s educational computer game walkthroughs, with views numbering in the hundreds of thousands.

But I still had a lingering question. I was too young to have played Rocky’s Boots or the original Reader Rabbit. How educational, I wondered, were those later games, the Cluefinders ones I’d loved as a fourth grader?

Buckleitner, who has been reviewing educational games since 1984, assured me of their quality. “They were good!” he said. “They had animation, music… for the first time you had actors speaking, kind of like comic books. They teach higher order thinking, so they fit well with school curricula.” That I never thought about it means they were doing their job.